Personal SIPP and Employer Contributions

**dork** · 17 January 2008, 19:53

I'd ask your accountant...

Personally, I just pay it on a direct debit from my business account and it does down on the accounts as pension contributions. Does me well, but I don't pay a huge proportion into it.

To be honest, I'd also get other financial advice about planning for retirement. Pensions aren't all they're cracked up to be and it might be worth also putting the money into other long investments, especially those with tax advantages.. again, though it depends on how much you pay yourself through PAYE... there are a lot of tax implications.

**expat** · 21 January 2008, 10:04

Originally posted by moraghan View Post

Hi

i am planning to open up a SIPP with Hargreaves and Lansdown and pay in all of the money from my Limited Company. I am caught by IR35 and have paid everything through salary over the last 4 years. I am now planning to pay basically about 70% of my total income into the SIPP.

I have a couple of questions. Is it a matter of just using online banking to transfer money from my company Account directly into the SIPP account. Do i simply make a payment transfer anytime I feel the need? H&L have a form to fill in by the Company if the Company is making monthly combinations ... but it says nothing about 'on the fly' transfers.

Also, I have noticed that a few threads have raised the question about limits being placed in a SIPP being based on salary paid (eg. you should not pay 80% of total income money into a SIPP if you are only paying 10% salary) ... I take it that this is not an issue if you have paid everything through salary for years but not previously put anything into a pension ... ie. you can use previous years salaries as well if they do base allowed SIPP contributions on salary.

Thanks.

1. You can put money in the SIPP any time you want: the SIPP provider will need to know whether it is from your Ltd Co (therefore gross), or from you personally (paid with taxed money and therefore liable to receive grossing-up from HMRC).
BUT...
2. If the Ltd Co just pays money, whether ad hoc or on a regular arrangement, it is free of PAYE but not of NICs.
OTOH If you set it up as "salary sacrifice" then your Ltd Co can pay in directly without being liable for PAYE or NICs.

You have to set up the arrangement so that HMRC will accept it as a "successful salary sacrifice"; but they will not tell you exactly what you have to do in order for it to be accepted, because "it is an aspect of employment law and not of tax law".
(I know, I know, in a one-man-band Ltd Co, it must logically be salary sacrifice because all the Ltd Co's money is coming to you one way or another. But I don't make the rules).

DYOR (google "salary sacrifice on HMRC site), ask your accountant, etc. If you are in IR35, "salary sacrifice" is a very important phrase for your pension.

**boxman** · 21 January 2008, 10:51

Originally posted by expat View Post

2. If the Ltd Co just pays money, whether ad hoc or on a regular arrangement, it is free of PAYE but not of NICs.

I think you may be getting confused between employer and employee contributions here.

Pensions are just about the only thing left that an employer can provide WITHOUT an NIC charge applying. The frequency/pattern of employer contributions is irrelevant. However, if yourco is paying contributions in excess of 100% of salary for a given employee/director then in some cases HMRC may choose to challenge the bona-fides of the pension arrangement and seek to disallow corporation tax relief.

The best advice is always to check with your accountant just in case. Pensions are far from simple despite the rhetoric to the contrary!

**expat** · 21 January 2008, 15:27

Originally posted by boxman View Post

I think you may be getting confused between employer and employee contributions here.

Pensions are just about the only thing left that an employer can provide WITHOUT an NIC charge applying. The frequency/pattern of employer contributions is irrelevant.

I am not confused though I may be mistaken!

The point I wanted to make is that, if HMRC do not accept that the employer payments are a result of salary sacrifice, they may assess that the employer has merely allocated income on the employee's behalf. This would mean that that income was liable to tax and NICs as if it had been received by the employee as net income. Of course, if the destination was a pension, then the tax would in effect be refunded just as it would be if the employee really did pay it out of his own pocket; but not the NICs.

**boxman** · 21 January 2008, 16:34

Originally posted by expat View Post

if HMRC do not accept that the employer payments are a result of salary sacrifice, they may assess that the employer has merely allocated income on the employee's behalf.

I think that the salary sacrifice is a bit of a red herring here...

Salary sacrifice (in the context of pensions) involves the formalised process of an employee agreeing with his employer to forgo a part of his remuneration in return for a corresponding contribution to the employee's pension. This is a long-established practice, accepted by HMRC provided is correctly documented. As part of the salary sacrifice arrangement the employer would normally agree to redirect that portion of the gross salary sacrificed plus the employer's NICs saved (by not paying the amount out as salary) into the employee's pension plan.

It is clearly not a pre-requisite for a salary sacrifice arrangement to be in place for employer pension contributions to be paid on behalf of an employee (I'm not suggesting you thought it was BTW) and and any such payments (where a salary sacrifice is not in place) will not in any circumstances (that I can think of) be assessed on the employee for PAYE or either the employee/employer for NICs.

Personal SIPP and Employer Contributions